Both new and experienced hosts know that setting out an effective pricing strategy for your Airbnb can be difficult, especially without the right tools.
When deciding on a nightly rate for your vacation rental, it’s easy to make the mistake of either pricing too high or too low. The effect of this is that you either don’t get enough income from your property or struggle to attract guests to your Airbnb.
Pricing software can help you lock down an effective pricing strategy that can have your rental property rates set just right to maximize revenue.
One such tool is Airbnb Smart Pricing. Find out how hosts use Smart Pricing to set their listing prices automatically and to see if it suits your pricing strategy.
What Is Airbnb Smart Pricing and How Does It Work?
Introduced by Airbnb, the Smart Pricing tool is built into the Airbnb app and designed to update your listings’ prices to automatically match current market trends and demand.
Airbnb Smart Pricing works with an algorithm using specific insights and metrics to suggest the optimal pricing for your listings. The tool is able to analyze the data relevant to each listing and set your prices based on the results.
As a host, you are also able to set a minimum and maximum price so that you can maintain control over the price range.
What Data Does Airbnb Smart Pricing Base Pricing Suggestions on?
The Airbnb Smart Pricing tool takes a vast amount of information into consideration. All the indicators collected will inform the tool whether your current rates should be increased or decreased to meet or drive demand.
Here are the main factors used to adjust the pricing of your Airbnb when using Smart Pricing:
Local demand and supply
The basics of any business strategy show that the higher the demand, the higher you are able to price your product or service. The same goes for your short-term rental.
Airbnb Smart Pricing can detect when your listing is more popular and will increase your price accordingly. Then, during the months when traffic is low, it will decrease your price to help attract more travelers.
Local events and changes in season will also play a role in demand fluctuations and will cause the tool to adjust your pricing.
What your property and area have to offer guests will naturally impact the pricing of your Airbnb property.
Airbnbs that offer luxury amenities like a pool, hot tub, barbeque area, or another unique feature are able to charge more than those who do not.
This is an advantage for hosts whose Airbnb listings already have these features. But if your Airbnb does not have these amenities, there is also no need to worry. It does not seriously affect the price because of all the other factors taken into account.
High-quality listings attract more travelers and, in turn, more demand. How well your listing is presented on Airbnb will, therefore, impact your pricing too.
Having a listing that describes your property with all information present and captivating images will make it more attractive and lead to higher interest and help secure more bookings.
The average number of people who view your listing
More people viewing your listing indicates that your property is of interest to travelers. Popular listings could carry a higher rate to capitalize on the demand, while less popular listings may need to advertise a lower price for a while to draw more attention from potential guests.
Improving your listing is a simple and cost-effective way to make your property stand out and trigger a higher price point on the Smart Pricing tool.
Number and ratings of reviews
Guests are more inclined to book properties that have ample positive reviews. It gives them impartial opinions of your vacation rental from people who have already stayed there.
By encouraging a healthy reviewing culture on your listing, you will be able to get more bookings, drive up demand, and receive better price tips from the Smart Pricing software.
Boost your ratings by getting as many 5-star reviews as possible and encourage each guest to write a review for your listing by taking the first step and leaving a host review for them.
Different rooms and properties will fall into different categories with the Smart pricing tool depending on what they offer and what type of guest your listing caters to.
Big and luxurious Airbnb properties will fall into a higher pricing category than shared spaces for backpackers, for example.
The price needs to reflect the type of property and price point travelers are looking for, and the software is able to adjust price tips accordingly based on the type of room or space.
Similarly to tracking demand, the Airbnb Smart Pricing tool also favors properties that receive bookings frequently. A filled calendar indicates that your listing attracts many guests, which Airbnb is able to capitalize on. The more your calendar is filled with bookings, the better it is for your pricing.
The pricing tool will suggest higher price tips on Airbnbs that attract more guests so that they can earn greater commissions on the property.
Similar listing searches
Airbnb factors this into its algorithm because it shows that travelers are looking for the same kind of property as yours.
If lots of guests are looking for properties similar to yours, it will indicate that there is a greater demand for your listing too. Because of this, Airbnb will feature your listing more regularly in search results and the pricing tool will adjust your prices as demand increases.
Is The Airbnb Smart Pricing Tool Right for Your Business: The Pros and Cons Explained
Now that you have an idea of how Airbnb Smart Pricing works, you will need to decide whether it is the right tool for you and your business.
Here are the main pros and cons of the tool:
1. You maintain control
You are able to set minimum and maximum prices on each listing. The tool will not be able to set a rate lower than your minimum price, nor higher than your maximum price.
2. Your prices are based on real-time metrics
Price tips are always changing based on real-time fluctuations.
3. Your price tips are market-related
Your short-term rental will always be related to current market fluctuations, giving your listing a competitive edge.
4. You are not forced to use the tool
You can switch the tool on or off whenever you want.
5. You can strike a balance in pricing
The tool’s goal is to help you strike a balance between getting the best price for your rental vs. maximizing occupancy rates.
1. Your prices can drop too low
The price of your vacation rental could drop lower than you otherwise would have set it yourself. Some hosts think that Airbnb prices their property too low when using Airbnb Smart Pricing
2. Your Airbnb fee structure stays the same
Airbnb’s fees remain the same regardless of price. This could negatively affect the profitability or your short-term rental if prices are set too low to bring in a decent revenue amount.
3. Your occupancy may be favored over maximizing your revenue
Many hosts feel that Airbnb Smart Pricing underestimates the demand for their property and sets nightly prices too low to prioritize the number of bookings, which negatively affects hosts’ income.
4. Your property’s unique or upmarket features may go unnoticed
If you have unique or luxury aspects to your property that do not fall within the usual property amenities, but that could make your offering comparatively better than others like it, Airbnb’s tool could overlook them during its analysis.
For example, if two different properties each have one bedroom, but the bedroom in one property looks significantly nicer or has extra attractions like art pieces or higher quality furniture than the other, the tool will still measure the bedrooms in the same way.
5. Your prices may not change with the season
While Airbnb says that they account for changes in the season, many hosts claim this is not always true.
6. Your local events may not be recognized in time
Hosts claim that their price tips are adjusted too late to take advantage of the spike in traffic to their area as a result of the event.
Alternative Dynamic Pricing Software
An alternative option to Airbnb Smart Pricing is taking advantage of a dynamic pricing tool.
Like Airbnb Smart Pricing, dynamic pricing tools for your vacation rental will adjust your nightly rate in real-time based on various trends in the market.
While quite similar to the Airbnb tool, dynamic pricing has a more advanced algorithm that takes additional factors into consideration.
It is more effective in responding to even the slightest changes in market trends, seasonal changes, upcoming events, fluctuations in demand and supply, and changes in availability.
Here are a few examples of industry-leading dynamic pricing solutions:
1. Beyond Pricing
This is a popular solution for vacation rental owners and managers who are looking to grow their profit margins. The tool leverages an algorithm that automatically sets up your properties to be booked at the best price per night at any given time.
A web-based dynamic pricing solution that uses market research and insights as well as automation to increase revenue for vacation rental hosts. An additional feature of PriceLabs is that it allows you to adjust prices per night in bulk.
DPGO is an AI-based dynamic pricing solution that offers hosts and vacation rental managers an effective pricing formula and greater income opportunities.
DPGO’s algorithm learns more every day and is constantly analyzing competitors’ pricing and more than 900 price-influencing trends on a daily basis.
Created by a team of Ph.D. data scientists and revenue management experts, the Wheelhouse Pricing Engine analyzes more than 10 billion data points every day.
Wheelhouse offers dynamic pricing automation as well as market reports and insights to make well-informed decisions about your business.
Airbnb’s Smart Pricing tool can be useful for setting market-related prices and attracting more bookings, but it comes with some negatives too. Even if you prefer to monitor your prices manually, it may be a useful tool to use some of the time.
However, if you would like more advanced pricing solutions, dynamic pricing tools may be a worthwhile investment in your vacation rental business.